U.S. Pushes For Open Legal Markets At GATS Talks

The United States exported $3.38 billion in legal advice in 2003, almost four times the $879 million it imported, according to the most recently available statistics from the U.S. Department of Commerce. These numbers suggest the United States should be an aggressive proponent of free trade at the upcoming World Trade Organization (WTO) meeting in which members will commence a new round of talks on the General Agreement on Trade Services (GATS). The goal of the GATS treaty is to liberalize the exchange of services in the public sector, including legal services.

"More and more companies are running into cross-border situations that may be ordinary in terms of their operations, but are complicated by the legalities of implementing these operations in a foreign legal system," says Steven Nelson, the Hong Kong-based co-chair of Dorsey & Whitney's Asia practice group. Nelson also is a member of the International Bar Association's (IBA) WTO working group, which favors the liberalization of trade in legal services. "I suspect that this round of GATS will give U.S. attorneys more of the mobility they need to properly advise clients in these situations."

But whether the United States will be able to advance the process of liberalization in the GATS negotiations is in serious doubt.

To encourage other nations to follow suit, The Office of the U.S. Trade Representative--supported by the ABA--is anxious to liberalize restrictions on foreign lawyers setting up shop in the United States. Currently, several important trading partners prohibit foreign lawyers outright while others, such as Japan, still have significant entry barriers despite recently relaxing their rules.

But there's a bigger problem on the U.S. side: the 50 states that regulate lawyers through their supreme courts.

So far only 24 states allow foreign legal consultants into their bailiwicks, and all restrict these consultants to advising only on the laws of their home country and other international law. And to make matters even more complicated, the details of the entry barriers are different in almost every one of these states.

"The regulatory overlay will make it very difficult for the United States to negotiate the liberalization of legal services," says Don De Amicis, a partner at the Boston office of Ropes & Gray and chair of the ABA's GATS Task Force.

If the United States can't liberalize its own legal framework, its negotiators will find it impossible to make a credible case that a new GATS treaty should prevent signatories from imposing arbitrary impediments to foreign lawyers. If this occurs, they will have lost a golden opportunity to ease a problem for a host of U.S. multinationals who have American attorneys as their key advisers.

Indeed, the slow progress of the current round of negotiations suggests it may be some years before another round of GATS negotiations gets off the ground.

A Slow Process

The 1994 GATS treaty expressed the commitment of all WTO members to negotiate for progressive liberalization of trade, including trade in legal services, within five years of signing the treaty. After preliminary negotiations in 2000 (known as "GATS 2000"), the WTO member states met in Doha, Qatar, in November 2001 and agreed to begin a new round of substantive GATS talks (the "Doha" round) to be completed no later than Jan. 1, 2005.

But the talks have been arduous and proposals for liberalization slow in coming."The services negotiations have become static because there has been so little progress in areas that have more priority, such as agriculture," says Markus Jelitto, legal counselor in the trade and services division of the WTO in Geneva.

Proponents of a more open legal framework hope to make some progress in the May meeting, and will argue that in today's increasingly global market, lawyers need to follow their clients to the countries where they operate and give them advice on the laws of their home country and international law.

"Otherwise clients have to rely entirely on foreign lawyers who may not share their culture, approach to business or even their language," says Barry Appleton of Appleton & Associates, an international law firm with offices in Washington, D.C., and Toronto. "Companies need attorneys whom they know as a buffer to bridge the legal culture gap, even on matters as mundane as billing practices and timeliness of service."

Bernard Greer, a partner at Alston & Bird in Atlanta and chair of the IBA's WTO working group, argues that the benefits of free trade in legal services go beyond the advantages to multinationals.

"Liberalization promotes the spread of legal skills to places where those skills might be wanting," he says. "Liberalization also promotes economic development within the rule of law."

Jelitto agrees: "There's a general common sense that speaks to the benefits of open legal markets in today's world."

But the majority of state bars are having none of that.

State Barriers

"State bars tend to be protectionist," Greer says.

The protectionist case is usually presented in terms of consumer welfare. Unless states can judicially regulate and discipline all lawyers practicing in their jurisdictions, the argument goes, there will be no assurance of attorneys' competence and integrity and the public will suffer.

But Jelitto says the argument is losing steam, because there are measures less restrictive than an outright ban available to protect consumers--such as limiting the areas of law in which foreign lawyers can practice, and regulating their form of organization and association with local professionals.

"There is a development toward open legal markets," he says, pointing to China, which started opening its doors to foreign lawyers when it joined the WTO in 2002; to Japan, where new laws allowing foreign lawyers to partner with and hire Japanese lawyers recently came into force; and to South Korea, which for the first time has tabled a proposal with the WTO that would allow foreign lawyers limited access to its markets.

And as for the United States, there's little doubt about the demand for access to American legal markets: foreign firms have set up shop in all 24 states that allow them to do so. New York is the best example, hosting many of the world's multinational law firms and many local offices of smaller foreign firms.

Still, getting the protectionist states to change their minds has been a slow process. It has taken 31 years--since New York began the practice of registering and regulating foreign legal consultants in 1974--to bring less than half the states into the fold. And only a handful of the states that allow foreign lawyers have adopted the ABA Model Rules for the Licensing of Foreign Legal Consultants, which are based on the expansive New York rules. The remainder of states have their own detailed rules as to what foreign lawyers can do.

As recently as January, South Carolina Chief Justice Jean Hoefer Toal told a plenary session of the Conference of Chief Justices in New York that her court

wasn't inclined to allow foreign lawyers into the state. And in Florida, where the Supreme Court is considering changes to the rules that govern out-of-state and foreign lawyers, the Florida bar is arguing for even tighter controls than currently exist.

All this doesn't bode well for the U.S. position in the GATS talks. But surprisingly, optimists aren't hard to find.

Keeping The Faith

"We understand that, regardless of the position of dissenting states, the U.S. Trade Representative will be using the existing rules in the 24 states that allow foreign legal consultants as a basis for what we will put on the table in May," De Amicis says. "And there may well be more states that liberalize their approach during the course of the negotiations."

If the painfully slow pace of the Doha round is any indication, there is indeed time for states to hop on the liberalization bandwagon before the United States negotiates a new treaty. Appleton, who expects to see a widespread agreement facilitating access to legal markets when the negotiations are concluded, says that the absence of progress at this stage isn't surprising.

"Trade is like high-stakes poker, where the pot doesn't get big until later in the game," he says.

"Later in the game" may turn out to be the end of 2005: the United States has indicated it hopes for a successful conclusion to the GATS talks by 2006.

In the long run opening the borders to foreign lawyers will benefit American attorneys, says Jos?? 1/2 Astigarraga, a partner in Miami's Astigarraga Davis. Astigarraga is urging the Florida Supreme Court to liberalize access to legal services.

"It is shortsighted to treat territorially a profession that is dealing with issues across the globe," he says.